By Mike Colpitts
A mortgage rescue program intended to save under water mortgage holders from defaulting on mortgages has offered $86-million in real estate rewards to homeowners since launching. The private company program implemented by Loan Value Group, a New Jersey based firm has helped more than 1,000 mortgage borrowers in its first four months of operation.
Company officials expect to be able to help 250,000 mortgage borrowers by the end of summer, and expand the mortgage rescue program to aid two to three million homeowners over the life of the plan.
Loan Value Group is working with three major financial institutions, offering cash rewards as incentives to under water homeowners to keep paying their mortgages. Two others have signed letters of intent to work with the company in an effort to reduce the number of strategic defaults that are contributing to the foreclosure epidemic. A series of studies have shown that about 1 in 3 foreclosures are from strategic defaults, in which homeowners intentionally walk away from a mortgage as a result of owing more on their loan than what they could sell the home for in today’s marketplace.
Financial institutions taking part in the program have signed strict confidentiality agreements with LVG. “The risk mortgage owners have is the same as the government has had in its programs,” said Frank Pallotta, a partner in the firm. Obama administration programs to stem the tide of foreclosures have been criticized for not being fast enough to help homeowners at risk of foreclosure.
“The financial institutions are bogged down with government regulations and can’t keep up with the back log of mortgages in trouble,” said Pallotta.
Company officials have met with representatives of the Treasury Department to work out a program for Fannie Mae and Freddie Mac, the nation’s two giant providers of real estate mortgages. “I’m especially interested in getting the GSEs (Government Sponsored Enterprises) involved to help them,” said Pallotta. The two government supported mortgage giants have been beset by billions of dollars in foreclosures and been given billions in tax payer money to bail-out the companies.
More than 20% of under water mortgage holders the company has helped have been in Florida, which as the nation’s largest vacation home market has more owners considering strategically defaulting on mortgages than any others. The program helps owner occupied homeowners and investors, writing agreements in 45 states since launching.
Re-default rates have been “minimal” during the 90-day trial period. Mortgage holders are paid an agreed upon amount when they either sell their homes or refinance after paying mortgages in a timely fashion over the course of the program. Rewards can range into many tens of thousands of dollars.
Unlike government rescue plans, homeowners are recommended for the private program by the holders of their mortgages. Loans are not modified and online enrollment averages only 48 hours from initial contact by the loan owner.